What is GMV?
Gross merchandise value is a business metric commonly used in eCommerce which measures the total volume of sales over a certain period of time, such as on a quarterly or annual basis. Also referred to as the Gross Merchandise Volume, this calculation is made prior to the deduction of any accrued fees and expenses associated with the sales, like cost of delivery, discounts, marketing, returns and so on, whereas the Net Merchandise Value represents the amount after deduction, providing a more accurate figure on dollar value of items sold.
eCommerce GMV can be calculated using the following simple formula:
Number of Total Transactions x Average Order Value (AOV*)
AOV* is the amount spent every time a customer places an order.
GMV valuation has played an important role in online retail, often being used as a predictor of business growth, replacing more traditional economy metrics like revenue. But many believe the acronym, famously cited by Amazon, Alibaba, and Walmart in their earnings reports, operates on the teetering assumption that more transactions equals bigger profits. Problem is, GMV doesn’t account for the average revenue per user which may consist of a large number of users with smaller order values, resulting in higher conversion rates but lower total revenue. Nor does it include the important cost-related factors of each individual sale (deductions mentioned above), meaning continued growth may end up in wider operational losses.
We recommend using GMV as only one metric of measurement among a balanced variety of key performance indicators. Some of which may be:
- Revenue
- Customer Acquisition Cost
- Customer Lifetime Value (CLV)
- Average Order Value (AOV)
- Average Revenue Per User (ARPU)
- Net Promoter Score (NPS)
- Conversion Rate
- Churn Rate
- Net Merchandise Value
- Transactions